Limiting liability for wilful default
Mott MacDonald v Trant Engineering (High Court) [2021]
This case was an interim application to the court to determine a preliminary point of law as to whether a contractual limitation clause would apply to breaches of contract occurring as a result of deliberate or wilful conduct .
Facts:
The dispute arose out of a project to build a power station on the Falkland Islands. Mott MacDonald (MM) provided design consultancy services to Trant Engineering (Trant) as a part of its tender submission. Trant was awarded the contract and shortly after, a dispute broke out between MM and Trant concerning the scope of works and payment. The parties eventually settled the dispute and entered into a Settlement and Service Agreement (the SSA) which dealt with both liability and attempted to establish the parties’ obligations in respect of the project moving forward.
However, this did not end the matter. Both parties subsequently contended there had been a breach of the SSA, with MM pursuing Trant for non-payment of sums due. Trant counterclaimed on the basis that MM had “fundamentally, deliberately and wilfully” breached the terms of the SSA. MM sought a declaration from the court on the issue of whether liability for fundamental, deliberate and wilful breaches of the SSA would fall within the scope of clauses limiting and restricting liability.
Under the SSA, MM’s liability was limited as follows “the total liability of the Consultant in the aggregate for all claims shall be limited to £500,000”. Despite this, Trant claimed in excess of £5million of losses arguing that MM had breached its obligations under the SSA in order to put improper pressure on Trant to pay sums which were not due. Details of the exact nature of the alleged refusal are quite limited from the judgment itself but, in any event, the court was not actually required to assess whether the conduct in question was deliberate and wilful.
Decision:
The court confirmed that there is no presumption that a party who “deliberately and wilfully” breaches a contract cannot rely on a limitation or exclusion clause. To exclude such breaches from the scope of a limitation or exclusion clause, the wording must be clear.
The court noted that previously there had been conflicting authorities on this issue. In Internet Broadcasting Corp v MAR (2009) http://www.trglaw.com/News44.html , the High Court held that there was a presumption that a party in deliberate repudiatory breach of a contract cannot rely on an exclusion clause. According to the court in 2009 that presumption could only be displaced by strong express language. Conversely, in the later case of AstraZeneca v Albemarle (2011) http://www.trglaw.com/news106.html the court held that the approach in the MAR case was contrary to precedent and should not be followed.
The court here confirmed that the correct approach of construing limitation or exclusion clauses where there had been a deliberate breach was to “simply construe the clause, albeit strictly, but without any presumption” (thereby following Albermarle rather than MAR). As such, the fact that the purported breach of contract might have been deliberate has no material effect on the ability of a party to exclude or limit liability. A deliberate breach was to be treated in the same way as any other breach.
Turning to the particular limitation clause in this case, the judge said that the wording in question was in clear terms and perfectly capable when read naturally of applying to the alleged breaches.
As an aside, the judge said “the levels of the limitation on liability [and the amounts to be paid] are matters of commercial balance and negotiation in respect of which the court must be alert to avoid intervening to protect one or other party from the consequences of a bad bargain”.
“I am satisfied that when properly construed the clauses in question are applicable to any breach by the claimant of the SSA including breaches which were fundamental, deliberate, or wilful”.
Points to Note:
- Although the decision focussed on whether the limitation clause covered deliberate, wilful breaches, the judgment also made references to ‘fundamental’ breaches. It said that the courts had long ago rejected the doctrine that exclusion clauses did not apply where the party seeking to rely on them had been guilty of a fundamental breach.
- Limitation and exclusion clauses will therefore, in the absence of clear words to the contrary, apply to breaches even if they are deliberate / wilful. If the parties wish to change that position, wording to that effect would have to be included as will a definition of conduct which might qualify as deliberate. Contracts at present, very rarely draw such a distinction.